Dueling Fools Disney's at the Bottom
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Dueling Fools
By Rick Aristotle Munarriz (TMF Edible)
October 10, 2001

Scar: Oh, Simba, you're in trouble again. But this time, Daddy isn't here to save you. And now EVERYONE KNOWS WHY!
--  The Lion King

It's the circle of life, folks, and now Disney is forced to pay the price for its Hakuna Matata (i.e. No Worries) ways. It got cheap with its theme parks. It banked the fate of its network on one hit show. It figured it could rely on plush toys based on uninspired formulaic animated films forever. It overpaid for ammo in the Internet revolution. Yes, Disney had it all. Once. Now it's scrambling just to get some of it back.

While I'm sure Bill was banging the table over Disney as a value play, the meat of the matter is that the entire franchise has been devalued too. If you begin breaking the entertainment conglomerate into its five major components, you begin to see the problems. You also begin to see that there is no easy fix.

Theme parks & resorts
Mickey Mouse: I sold the cow for some magic beans.
-- Mickey and the Beanstalk

There's this ride at Disney's Magic Kingdom down in Florida called Alien Encounter. Without giving too much away, let's just say that an alien escapes and this ugly critter is flying around the old Mission to Mars building. In the dark! Some poor unknowing stage tech gets summoned to try to restore power to the place. For now, let's just call him Michael Eisner. Fellow Disney cynics can call him Paul Pressler if they wish. Anyway, at this point in the attraction you begin to see things through Michael's eyes -- only his night vision goggles are rose-colored. Nice. He finds the fuse box, shredded to bits. He turns to see the monster. "I can see the problem," he says, just before the problem chomps him down.

The moral of the story is that if you are looking for the problem through rose-colored specs you're as good as toast. You're Bambi's mom. You're Mufasa on the ledge. Disney used to be a company that would spend freely to make sure it was filling its theme parks with magnetic attractions. But it squandered its cash cow for the cost-shaving magic of bean counters. Do you want to know where this beanstalk leads?

Let's set aside last month's horrific tragedies. Attendance had been down all year in the company's Florida stronghold. Spinning carpet rides and parades just don't cut it anymore. And the few times Disney aims for an E-ticket addition, it budgets it down to an F-graded failure. Disneyland's Rocket Rods ride has dismantled. Epcot's Test Track has been testing the ABS system often with its many operating halts. But the best showcase for Disney's thrift-fueled woe is the failure of its two newest theme parks -- Disney's Animal Kingdom and Disney's California Adventure.

It would be bad enough if park traffic was stagnant, but it's actually going in reverse. Earnings too. The bottom line dipped in the third quarter and things look like they will only get worse. Salomon Smith Barney analyst Jill Krutick expects operating earnings from the park to tank in this brand-new fiscal year. 

Media networks 
Iago: I think I'm gonna have a heart attack and die from not surprise!  What're we gonna do?  We got a big problem here.
 -- Aladdin

Here's the million-dollar question: You have a hit television game show on your hands, ABC. What are you going to do?

Milk it. Air it for as many nights as possible to speed the show towards its ultimate fall from grace.

Bank it. Forget about developing any bona fide shows to build upon given the higher ratings.

Deny it. When the new season starts and ABC doesn't land a single show in the Nielson Top 10, play it off as a fluke and go about the daily grind.

Forget it. I'm going to Disney World!

Well, you could have phoned a friend. Anyone, really, because while these four options might sound incredulous, they are exactly how Disney wasted an opportunity to be a serious network contender after riding Who Wants to Be a Millionaire to the top last year. By not producing a single top-rated show during the season premieres two weeks back, Disney is looking for ABC to land the bronze medal at best.

Meanwhile, over at ESPN, ad rates are falling yet the company has locked itself into long-term contracts with step clauses. This is only to going to get uglier, every step of the way. In the words of Chris Berman, this... could... go... all... the... way.... as one of the dumbest moves in sports programming. But now ESPN has gone too far the other way. Despite growing competition, it balked when it was time to renew its contract to help run NFL.com for the National Football League.

Disney has quite a few other cable properties, which would normally serve as safe haven given steady cable subscriber money, but it hasn't been enough. Operating profits here tanked 29% this past quarter and no one sees a recovery in sight.

Internet
Maurice: I'm about ready to give up on this hunk of junk!
Belle: You always say that.
Maurice: I mean it, this time. I'll never get this boneheaded contraption to work.
  -- Beauty and the Beast

You would think that with high-profile destinations like Disney.com, ABCNews.com, and ESPN.com that Disney would be feasting online. It isn't. Revenue is falling. Losses continue. The same folks that ruined toysmart.com and Go.com aren't getting any brighter. Crazy old Maurice, he's always good for a laugh.

Studio entertainment
Ariel: Ask 'em my questions, and get some answers. What's a fire and why does it -- what's the word -- burn?
  -- The Little Mermaid

What happens when you tire of vanilla? Disney, a perennial lightweight in live action, always had the animated blockbusters, at least. The new era of Disney animation was ushered in by Jeffrey Katzenberg. He bolted after Eisner appointed his buddy Michael Ovitz to the role of "wait a few months before you pull the ripcord on your golden parachute, Mr. President." Did you see how badly Disney's Atlantis: The Lost Empire tanked? Did you see how Katzenberg's Shrek rocked the box office this summer? Just wait until Disney's 50/50 agreement with Pixar (Nasdaq: PIXR) runs out. To quote from one of Disney's rare hit movies -- The Sixth Sense -- sometimes the dead don't know they're dead.

Consumer products
Hades: What are those?
Pain: Um, I don't know. I thought they looked kinda dashing.
Hades:  I've got 24 hours to get rid of this bozo, or the entire scheme I've been setting up for 18 years goes up in smoke and you are wearing his merchandise?
  -- Hercules

Disney was a natural for consumer products exploitation, but it's been pretty rough here for quite some time. There are way too many Disney Stores. Poorly attended animated features lead to disinterest in related merchandise and more yawns when it enters the home video market months later. This is the last domino to fall, and if you can still hear the ground rumble you know it has further to fall.

I've got so much more to say, and that's what rebuttals are for. Now back to America's favorite mouseketeer, Bill Mann!

Rick Aristotle Munarriz has been to Disney World more times than he can honestly remember. He also owns shares of Disney, though it's a Minnie part of his portfolio. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

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